Fair Value

3 Months Ended

Mar. 31, 2012

Fair Value

Fair Value

12. Fair Value

FASB ASC Topic 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. FASB ASC Topic 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Transfers between leveling categories, when determined to be appropriate, are recognized at the end of each reporting period.

The three levels of the fair value hierarchy under FASB ASC Topic 820 are:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3 – Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, segregated by the level of valuation inputs within the fair value hierarchy used to measure fair value.

Recurring Fair Value Measurements
March 31, 2012
	Fair Value
(in thousands)	03/31/2012		(Level 1)		(Level 2)		(Level 3)
Trading securities
Obligations of U.S. Government sponsored entities	$	12,454	$	12,454	$	0	$	0
Mortgage-backed securities – residential
U.S. Government sponsored entities		6,312		6,312		0		0
Available-for-sale securities
U.S. Treasury securities		2,049		2,049		0		0
Obligations of U.S. Government sponsored entities		562,586		0		562,586		0
Obligations of U.S. states and political subdivisions		61,133		0		61,133		0
Mortgage-backed securities – residential, issued by:
U.S. Government agencies		121,709		0		121,709		0
U.S. Government sponsored entities		481,310		0		481,310		0
Non-U.S. Government agencies or sponsored entities		5,620		0		5,620		0
U.S. corporate debt securities		5,169		0		5,169		0
Equity securities		1,022		0		0		1,022
Borrowings
Other borrowings		12,005		0		12,005		0

Recurring Fair Value Measurements
December 31, 2011
	Fair Value
(in thousands)	12/31/2011		(Level 1)		(Level 2)		(Level 3)
Trading securities
Obligations of U.S. Government sponsored entities	$	12,693	$	12,693	$	0	$	0
Mortgage-backed securities – residential
U.S. Government sponsored entities		6,905		6,905		0		0
Available-for-sale securities
U.S. Treasury securities		2,070		2,070		0		0
Obligations of U.S. Government sponsored entities		422,590		0		422,590		0
Obligations of U.S. states and political subdivisions		59,653		0		59,653		0
Mortgage-backed securities – residential, issued by:
U.S. Government agencies		129,773		0		129,773		0
U.S. Government sponsored entities		517,378		0		517,378		0
Non-U.S. Government agencies or sponsored entities		5,876		0		5,876		0
U.S. corporate debt securities		5,183		0		5,183		0
Equity securities		1,023		0		0		1,023
Borrowings
Other borrowings		12,093		0		12,093		0

There were no transfers between Levels 1 and 2 for the three months ended March 31, 2012.

There was no significant change in the fair value of the $1.0 million of available-for-sale securities valued using significant unobservable inputs (Level 3), between January 1, 2012 and March 31, 2012.

The Company determines fair value for its trading securities using independently quoted market prices. The Company determines fair value for its available-for-sale securities using an independent bond pricing service for identical assets or very similar securities. The pricing service uses a variety of techniques to determine fair value, including market maker bids, quotes and pricing models. Inputs to the model include recent trades, benchmark interest rates, spreads, and actual and projected cash flows. Based on the inputs used by our independent pricing services, we identify the appropriate level within the fair value hierarchy to report these fair values.

Fair values of borrowings are estimated using Level 2 inputs based upon observable market data. The Company determines fair value for its borrowings using a discounted cash flow technique based upon expected cash flows and current spreads on FHLB advances with the same structure and terms. The Company also receives pricing information from third parties, including the FHLB. The pricing obtained is considered representative of the transfer price if the liabilities were assumed by a third party. The Company’s potential credit risk did not have a material impact on the quoted settlement prices used in measuring the fair value of the FHLB borrowings at March 31, 2012.

Certain assets are measured at fair value on a nonrecurring basis. For the Company, these include loans held for sale, collateral dependent impaired loans, and other real estate owned. During the first quarter of 2012, certain collateral dependent impaired loans and other real estate owned were remeasured and reported at fair value through a specific valuation allowance for loan and lease losses based upon the fair value of the underlying collateral. The amount of fair value adjustment was not significant. Collateral values are estimated using Level 2 inputs based upon observable market data.

Non-Recurring Fair Value Measurements
March 31, 2012
	Fair Value
(In thousands)	03/31/2012		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans	$	9,313	$	0	$	9,313	$	0
Other real estate owned		1,906		0		1,906		0

Non-Recurring Fair Value Measurements
December 31, 2011
	Fair Value
(in thousands)	12/31/2011		(Level 1)		(Level 2)		(Level 3)
Collateral dependent impaired loans	$	21,931	$	0	$	21,931	$	0
Other real estate owned		1,335		0		1,335		0

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2012 and December 31, 2011. The carrying amounts shown in the table are included in the Consolidated Statements of Condition under the indicated captions.

The fair value estimates, methods and assumptions set forth below for the Company’s financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by generally accepted accounting principles in the United States and does not always incorporate the exit-price concept of fair value prescribed by ASC Topic 820-10 and should be read in conjunction with the financial statements and notes included in this Report.

Estimated Fair Value of Financial Instruments	03/31/2012				12/31/2011
(in thousands)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial Assets:
Level 1 Inputs:
Cash and cash equivalaents	$	103,317	$	103,317	$	49,567	$	49,567
Level 2 Inputs:
Securities - held to maturity		26,321		26,849		26,673		27,255
FHLB and FRB stock		16,460		16,460		19,070		19,070
Accrued interest receivable		13,038		13,038		12,420		12,420
Level 3 Inputs:
Loans/leases, net		1,950,621		1,999,475		1,954,256		2,003,257
Financial Liabilities:
Level 2 Inputs:
Time deposits	$	729,107	$	732,921	$	687,321	$	690,480
Other deposits		2,130,329		2,130,329		1,973,243		1,973,243
Securities sold under agreements to repurchase		169,456		177,030		169,090		179,840
Other borrowings		120,879		136,157		173,982		188,062
Accrued interest payable		1,302		1,302		1,354		1,354
Trust preferred debentures		25,066		25,904		25,065		25,314

The following methods and assumptions were used in estimating fair value disclosures for financial instruments.

CASH AND CASH EQUIVALENTS: The carrying amounts reported in the Consolidated Statements of Condition for cash, noninterest-bearing deposits, money market funds, and Federal funds sold approximate the fair value of those assets.

SECURITIES: Fair values for U.S. Treasury securities are based on quoted market prices. Fair values for obligations of U.S. government sponsored entities, mortgage-backed securities-residential, obligations of U.S. states and political subdivisions, and U.S. corporate debt securities are based on quoted market prices, where available, as provided by third party pricing vendors. If quoted market prices were not available, fair values are based on quoted market prices of comparable instruments in active markets and/or based upon matrix pricing methodology, which uses comprehensive interest rate tables to determine market price, movement and yield relationships. These securities are reviewed periodically to determine if there are any events or changes in circumstances that would adversely affect their value.

LOANS AND LEASES: The fair values of residential loans are estimated using discounted cash flow analyses, based upon available market benchmarks for rates and prepayment assumptions. The fair values of commercial and consumer loans are estimated using discounted cash flow analyses, based upon interest rates currently offered for loans and leases with similar terms and credit quality. The fair value of loans held for sale are determined based upon contractual prices for loans with similar characteristics.

FHLB AND FRB STOCK: The carrying amount of FHLB and FRB stock approximates fair value. If the stock is redeemed, the Company will receive an amount equal to the par value of the stock. For miscellaneous equity securities, carrying value is cost.

ACCRUED INTEREST RECEIVABLE AND ACCRUED INTEREST PAYABLE: The carrying amount of these short term instruments approximate fair value.

DEPOSITS: The fair values disclosed for noninterest bearing accounts and accounts with no stated maturities are equal to the amount payable on demand at the reporting date. The fair value of time deposits is based upon discounted cash flow analyses using rates offered for FHLB advances, which is the Company’s primary alternative source of funds.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE: The carrying amounts of repurchase agreements and other short-term borrowings approximate their fair values. Fair values of long-term borrowings are estimated using a discounted cash flow approach, based on current market rates for similar borrowings. For securities sold under agreements to repurchase where the Company has elected the fair value option, the Company also receives pricing information from third parties, including the FHLB.

OTHER BORROWINGS: The fair values of other borrowings are estimated using discounted cash flow analysis, discounted at the Company’s current incremental borrowing rate for similar borrowing arrangements. For other borrowings where the Company has elected the fair value option, the Company also receives pricing information from third parties, including the FHLB.

TRUST PREFERRED DEBENTURES: The fair value of the trust preferred debentures has been estimated using a discounted cash flow analysis which uses a discount factor of a market spread over current interest rates for similar instruments.